Points need to be set at .010 open. The transition point between carburetor low speed circuit and high speed circuit can be a rough running spot. It usually happens around 1500-2000 RPM. The fact that if you leave the engine at the rough spot and it eventually clears points to either carb setting or oil recirculation system.
If your carb is or has been cleaned set the slow speed needles to about 1 turn out. Now take the boat out for a run. After it is warmed up do a full throttle hole shot. If the engine stumbles and runs rough then clears itself and runs well the needles are too rich. Continue hole shots and lean by 1/8 turn in at a time until you get smooth acceleration. HOWEVER: CAUTION. Too lean a setting will cause piston damage. DO NOT lean the needles to less than 3/4 turn out from lightly seated. 7/8 is better.
If the engine sags and then recovers, then picks up and runs well the needles are set too lean. again, richen by 1/8 turn out until it accelerates smoothly.
The oil recirculation system works to improve the idle. At low RPM, fuel puddles in the bypass passages. It can accumulate to the point where a slug will enter a cylinder and cause a misfire. The oil recirculation system burns this fuel in a cylinder BEFORE it becomes enough to cause a misfire.
On the fuel pump side of the engine near the split line are two plates held by four bolts each. these are the oil recirculation system. Remove the plates. You will need to make new gaskets because they are always destroyed in removal. Split the plate halves and clean the screens and orifices.See if that helps.
